Nifty faces resistance at 26,000 – Major large cap drivers

4 Oct 2024 , 01:37 PM

NIFTY RESISTANCE AT 26,000; ACTION SHIFTS TO CONSUMER PLAYS

September 2024 was always supposed to be an interesting month for markets for a number of reasons. Traditionally, September has been a month of probabilities and this time it was no different. On the one hand, there was the overhang of the US Fed decision. Of course, the Fed did not disappoint the street, having cut triggered dovish action by cutting rates by a full 50 basis points. For the Indian markets, the question still was, what will the RBI do? As  of now the RBI has not given any signal of its intentions, and that will only be known when it puts out its policy statement on October 09, 2024. The month of September also saw the US PCE inflation come down to 2.2% and the GDP growth robust at 3% in the second quarter. However, the concerns were building up in the Indian markets.

Even as FPIs continued to be net buyers in the Indian equity markets in September, there were two major concerns that had built up in the month of September 2024. Firstly, the situation in the Middle East and West Asia was worsening by the day. Israel was unrelenting in its attacks on the leaders of the Hamas and Hezbollah and that was putting them in direct confrontation with Iran. If Iran gets dragged into the war, there are large concerns. It remained to be seen if other Arab nations will remain neutral in the fight between Iran and Israel and, more importantly, what role the US would play.  Secondly, there were concerns that if Iran disrupted traffic in the Straits of Hormuz, it would impact the flow of oil to Asia with larger repercussions for oil prices. The pressure on the Indian trade account was visible as the current account deficit for Q1FY25 widened to $9.7 Billion or 1.1% of GDP. Clearly, while Nifty closed September with returns of over 2%, resistance at higher levels is evident.

HOW THE NIFTY STOCKS FARED ON MOMENTUM 1-MONTH RETURNS

We start with the short term momentum story; i.e., stocks that generated the best returns in last one month among the large caps. Even as the Nifty faced resistance at 26,000, the gains for the Nifty were above 2% with large caps doing better than mid-caps and substantially better than small caps. Out of the 50 stocks in the Nifty index, 34 stocks gave positive returns and 16 gave negative returns in September 2024. Here are the top 15 stocks by 1-month returns.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
BAJAJ-AUTO	12,355.00	13.35%	143.81%	12,774.00	4,903.05	151.99%	3.28%
SHRIRAMFIN	3,586.00	11.62%	86.36%	3,652.25	1,760.85	103.65%	1.81%
BAJAJFINSV	1,969.65	10.68%	28.12%	2,029.90	1,419.05	38.80%	2.97%
TATASTEEL	168.11	10.34%	30.76%	184.60	114.60	46.69%	8.93%
M&M	3,115.00	10.32%	99.12%	3,222.10	1,450.00	114.83%	3.32%
JSWSTEEL	1,030.00	9.45%	32.13%	1,032.90	723.00	42.46%	0.28%
BRITANNIA	6,339.00	8.25%	39.69%	6,362.90	4,347.70	45.80%	0.38%
HINDALCO	755.00	7.82%	53.50%	764.45	448.75	68.25%	1.24%
BHARTIARTL	1,713.35	7.58%	84.54%	1,779.00	895.45	91.34%	3.69%
NESTLEIND	2,696.65	7.57%	-88.05%	2,778.00	2,225.52	21.17%	2.93%
TITAN	3,828.00	7.26%	21.44%	3,886.95	3,055.65	25.28%	1.52%
BAJFINANCE	7,697.85	6.98%	-1.38%	8,192.00	6,187.80	24.40%	6.03%
MARUTI	13,246.70	6.73%	24.76%	13,680.00	9,737.65	36.04%	3.17%
NTPC	443.00	6.49%	80.49%	448.45	227.75	94.51%	1.22%
HINDUNILVR	2,959.40	6.49%	19.98%	3,035.00	2,172.05	36.25%	2.49%

Data Source: NSE

Which are the sectors that showed momentum in the last one month? There were again 3 Bajaj group stocks in the top-10, but that is attributed to the IPO of Bajaj Housing Finance. The one underlying theme in the gainers was the predominance of consumer plays. If you add the consumer plays across autos, financial services, FMCG and telecom in September 2024, 11 out the 15 stocks were consumer stocks. In terms of sectoral mix of the top 15, there were 3 auto stocks, 3 financial services stocks, 4 FMCG stocks and 1 telecom stock.

What about the list at the bottom? There were several Tata group names at the bottom like Tata Motors and TCS, which led to the Tata group index giving negative returns in September 2024. If you look at the bottom 10 stocks, the dominant theme was IT with 3 stocks, largely on account of concerns that the aggressive rate cut could be indicative of growth concerns in the US. This was expected to hit tech spending and pricing for IT stocks. The top 10 stocks gave average monthly return of 9.60% while the top 20 stocks gave 7.98% for September 2024. The month largely belonged to the consumer plays in the market.

ONE YEAR RETURN STORY FAVOURS CONSUMER PLAYS AND PSUS

Unlike the 1-month returns that captures momentum, the 1-year returns captures the longer term secular trend. Stability in the long term gainers is essential to prevent portfolio panic. Nifty index generated annual returns of 31.43%. Out of the 50 stocks in the Nifty 50 index, 49 stocks gave positive returns and only 1 stocks gave negative returns in last one year. The table below captures the top-15 Nifty stocks ranked on returns over last one year.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
TRENT	7,560.10	5.81%	264.14%	7,939.90	1,945.00	288.69%	4.78%
BAJAJ-AUTO	12,355.00	13.35%	143.81%	12,774.00	4,903.05	151.99%	3.28%
BEL	284.40	-4.74%	106.15%	340.50	127.00	123.94%	16.48%
M&M	3,115.00	10.32%	99.12%	3,222.10	1,450.00	114.83%	3.32%
HEROMOTOCO	5,726.00	4.71%	86.85%	6,246.25	2,923.95	95.83%	8.33%
SHRIRAMFIN	3,586.00	11.62%	86.36%	3,652.25	1,760.85	103.65%	1.81%
BHARTIARTL	1,713.35	7.58%	84.54%	1,779.00	895.45	91.34%	3.69%
NTPC	443.00	6.49%	80.49%	448.45	227.75	94.51%	1.22%
POWERGRID	351.50	4.58%	76.65%	366.25	193.75	81.42%	4.03%
ADANIPORTS	1,446.90	-2.27%	75.51%	1,621.40	754.50	91.77%	10.76%
COALINDIA	509.40	-2.82%	72.82%	543.55	283.05	79.97%	6.28%
SUNPHARMA	1,926.00	5.77%	66.29%	1,960.35	1,068.35	80.28%	1.75%
ONGC	296.80	-10.02%	55.12%	345.00	179.90	64.98%	13.97%
TATAMOTORS	975.80	-12.30%	54.66%	1,179.00	608.30	60.41%	17.23%
HINDALCO	755.00	7.82%	53.50%	764.45	448.75	68.25%	1.24%

Data Source: NSE

What are the sectors that emerged leaders in the last one year as the Nifty held above 25,000, but faced resistance at 26,000 levels? The story was almost similar to last month; with 4 auto stocks and 5 PSU stocks in the list. In addition, the FMCG  sector made an entry in the list as did the infrastructure and metals space, albeit with limited visibility. Based on annual returns, 3 stocks generated more than 100%, while 15 stocks generated more than 50% returns. A total of 28 of the 50 Nifty companies outperformed the Nifty index returns; with autos, FMCG, PSUs and consumer plays enacting a much bigger role.

How about the laggards on 1-year returns. There was just 1 stock (Bajaj Finance) that gave marginal negative returns for last one year. However, there were 4 other stocks that gained less than 10% in the last one year. These include Kotak Bank, Asian Paints, BPCL and IndusInd Bank. Two of them are banking stocks where the pressure is coming from regulatory issues and also from the risk of the NIMs narrowing in the coming quarters. Asian Paints has been under pressure through the year due to rising prices of inputs and emerging competition in the paints space from big guns like the Aditya Birla Group and the JSW group. BPCL has had concerns on its sale not going through, but appears to have picked up momentum in the last couple of months. If you look at the bottom 20, you would still find a predominance of private banks and IT plays.

HOW RESILIENT WERE NIFTY STOCKS IN SEPTEMBER 2024

How do we measure resilience of stocks. One of the proxies we can use is the extent of bounce from the yearly lows. We now look at the most resilient stocks in September 2024, using the bounce from the 52-week lows as a proxy for resilience. For the Nifty index, the bounce from the low of the year was 37.02%; largely led by PSU, FMCG and auto stocks in the last one year. Out of the 50 stocks in the Nifty 50 index, 6 stocks bounced more than 100% from the lows, while 19 stocks bounced over 50% from the lows and a total of 35 stocks showed more resilience than Nifty index. Resilience corresponds with annual returns.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
TRENT	7,560.10	5.81%	264.14%	7,939.90	1,945.00	288.69%	4.78%
BAJAJ-AUTO	12,355.00	13.35%	143.81%	12,774.00	4,903.05	151.99%	3.28%
BEL	284.40	-4.74%	106.15%	340.50	127.00	123.94%	16.48%
BPCL	369.50	3.44%	6.74%	376.00	165.73	122.95%	1.73%
M&M	3,115.00	10.32%	99.12%	3,222.10	1,450.00	114.83%	3.32%
SHRIRAMFIN	3,586.00	11.62%	86.36%	3,652.25	1,760.85	103.65%	1.81%
HEROMOTOCO	5,726.00	4.71%	86.85%	6,246.25	2,923.95	95.83%	8.33%
NTPC	443.00	6.49%	80.49%	448.45	227.75	94.51%	1.22%
ADANIPORTS	1,446.90	-2.27%	75.51%	1,621.40	754.50	91.77%	10.76%
BHARTIARTL	1,713.35	7.58%	84.54%	1,779.00	895.45	91.34%	3.69%
POWERGRID	351.50	4.58%	76.65%	366.25	193.75	81.42%	4.03%
SUNPHARMA	1,926.00	5.77%	66.29%	1,960.35	1,068.35	80.28%	1.75%
COALINDIA	509.40	-2.82%	72.82%	543.55	283.05	79.97%	6.28%
HINDALCO	755.00	7.82%	53.50%	764.45	448.75	68.25%	1.24%
ONGC	296.80	-10.02%	55.12%	345.00	179.90	64.98%	13.97%

Data Source: NSE

What are the sectors that are showing resilience in terms of bounce from the 52-week lows. The top 15 stocks by resilience are again dominated PSU stocks and auto stocks. In fact, there are 6 PSU stocks in the top-15 and 3 auto stocks in this list. The stocks from outside these segments included Trent, Shriram Finance, Adani Ports, Bharti Airtel, Sun Pharma, and Hindalco. The undertone of the gains in the last quarter has been largely led by metals, pharma and FMCG stocks.

What is the story of the laggards in the Nifty in terms of lowest bounce from the 52-week lows? There is just 1 stock that bounced less than 10% from the lows of the year (IndusInd Bank), with all the other stocks bouncing by at least 20% from the lows. The bottom list is dominated by the financial players and FMCG stocks, like in the previous month. Among the laggards other than IndusInd Bank were; Kotak Bank, Bajaj Finance, HDFC Bank, and Axis Bank.

SWING STORY – HOW CLOSE ARE NIFTY STOCKS TO YEARLY HIGHS?

Another interesting way to understand the undertone of the market is to check for the swing; or how close are the stock to their yearly highs. The closer they are, the higher the swing factor, and vice versa. When Nifty is facing resistance at 26,000 levels; the sign of a good swing stock lies in its ability to resist profit booking pressure at higher levels. The closer the stock is to the yearly highs, the stronger the swing factor. The Nifty index itself has a moderately strong swing factor as it is just about 1.78% short of the 52-week high. Out of the 50 stocks in the Nifty 50 index, 30 stocks are less than 5% away from their 52-week highs, while a total of 43 stocks are less than 10% away. Clearly, the swing has deteriorated since August due to the resistance faced by Nifty at 26,000 levels.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
JSWSTEEL	1,030.00	9.45%	32.13%	1,032.90	723.00	42.46%	0.28%
BRITANNIA	6,339.00	8.25%	39.69%	6,362.90	4,347.70	45.80%	0.38%
NTPC	443.00	6.49%	80.49%	448.45	227.75	94.51%	1.22%
HINDALCO	755.00	7.82%	53.50%	764.45	448.75	68.25%	1.24%
EICHERMOT	5,036.15	1.33%	45.82%	5,105.00	3,275.00	53.78%	1.35%
TITAN	3,828.00	7.26%	21.44%	3,886.95	3,055.65	25.28%	1.52%
APOLLOHOSP	7,200.00	3.92%	40.12%	7,316.95	4,726.00	52.35%	1.60%
CIPLA	1,655.00	-0.05%	39.45%	1,683.00	1,132.00	46.20%	1.66%
BPCL	369.50	3.44%	6.74%	376.00	165.73	122.95%	1.73%
SUNPHARMA	1,926.00	5.77%	66.29%	1,960.35	1,068.35	80.28%	1.75%
HCLTECH	1,796.00	2.44%	45.46%	1,828.55	1,208.55	48.61%	1.78%
SHRIRAMFIN	3,586.00	11.62%	86.36%	3,652.25	1,760.85	103.65%	1.81%
ITC	518.25	3.24%	16.60%	528.50	399.35	29.77%	1.94%
HINDUNILVR	2,959.40	6.49%	19.98%	3,035.00	2,172.05	36.25%	2.49%
ULTRACEMCO	11,800.00	4.42%	42.97%	12,138.00	8,045.05	46.67%	2.78%

Data Source: NSE

Unlike the 1-year returns list and the resilience list, which are largely similar, the swing list finds some new entrants; and is structurally similar to the 1-month return rankings. That is because it captures the immediate impact more forcibly. If you look at the top 15 in terms of proximity to their highs, 8 are defensives from IT, healthcare, and FMCG. Thanks to the Chinese stimulus, JSW Steel and Hindalco find themselves in the low swing list. The top-15 list has a strong dominance of recent performers with 4 players from FMCG, 3 from Healthcare, and 4 from the commodities space. The swing list finds more of stock specific stories than just sector level stories. That is why swing gives a refreshingly new perspective.

What is the story of the laggards in the Nifty in terms of proximity to the 52-week highs. There are 6 stocks that are more than 10% away from their 52-week highs; and the list is again dominated by the financials and cyclicals. Some of the stocks showing resistance at higher levels are Tata Motors, BEL, Adani Enterprises, IndusInd Bank, ONGC, and SBI.

CONVICTION INDEX: DOING WELL ACROSS ALL PARAMETERS

One way to check the conviction of outperformance, is to look at stocks that outperform on multiple parameters. What are the common factors among leaders in terms of 1-month returns, 1-year returns, resilience, and swing? Here is what we read from the data.

• The broad trend is towards a gradual shift from the cyclicals towards the consumer plays which broadly includes autos, FMCG and, to an extent, even financial services. However, over a 1 year period, the PSU stocks continued to dominate.
• Oil & gas stocks and IT stocks have come under pressure in recent months and that shows up in the way these sectors have been pressured in terms of short term momentum returns in the last 3 months.
• The two sectors that have gained the most from favourable swing in recent months are metals and healthcare. Metals is a recent entrant into this list, but healthcare has been on the top of this list for some time. High swing factor has strong short to medium predictive value for stocks.

One final point!. The real action in the market may not be in the toppers list, but in the intermediate list. For example, Oil & gas and IT have fallen out of favour, while metals and FMCG are back in favour. For others, it is business as usual.